UNCW Financial Update

Transcription

1 UNCW Financial Update Presentation to the Board of Trustees Audit Committee January 22, 2015

2 Page 2 UNCW Financial Update FY 2014 Audited Financial Statements

3 FY 2014 AUDITED STATEMENTS Page 3

4 Page 4 FY 2014 Financial Highlights State Auditor issued unqualified opinion No management letter comments or findings No material weaknesses in internal control over financial reporting Continued growth in net position, $18.8 million

5 Page Change in Net Position in (000's) FY 2012* FY 2013* FY 2014 Operating Income (Loss) Operating Revenues $145,653 $154,041 $158,088 Operating Expense 252, , ,028 Total Operating Loss (106,371) (113,872) (114,940) Nonoperating Revenues 110, , ,474 Income Before Other Revenues 4,267 9,015 9,534 Other Revenues 24,445 19,207 9,256 Change in Net Position 28,712 28,222 18,790 Net Position July 1 370, , ,359 Change in Net Position (above) 28,712 28,222 18,790 Net Position June , , ,149 Net Position Adjustment (1,559) Restated Net Position June , , ,149 Change in Net Position (%) 7.32% 7.09% 4.41% *Restated

6 Page 6 Net Position Increased $18.8 million 2014 Net Position $445,149 ($ Thousands) Restricted Nonexpendable $45,850 (10%) Invested in Capital Assets $260,492 (58%) Unrestricted $100,722 (23%) Restricted Expendable $38,085 (9%)

7 Unrestricted Net Position Page 7 Increased $17.6 million FY13* FY14 Unrestricted Net Position Unrestricted Trust 24,364,679 25,173,387 Overhead 2,637,044 2,101,851 Housing 9,710,320 16,370,638 Union 15,066,414 15,866,663 Food Service 3,717,953 4,227,255 Parking 1,984,379 2,640,666 Auxiliary Operations 4,177,657 4,733,156 Rec Ctr/Intramurals 3,283,614 3,854,790 ITSD Communications 1,794,360 1,751,404 Ed & Tech Fees 1,602,820 2,880,274 Endowment 12,195,530 14,959,494 Athletics 769, ,373 Other 1,782,710 5,950,244 Total $ 83,087,026 $ 100,722,195 * Restated

8 Page 8 Diverse Revenue Sources 2014 Revenue by Source $303,309 ($ Thousands) Non Federal Grants & Contracts $2,111 1% Noncapital Gifts, Net $3,339 1% Other Revenues $6,636 2% Investment Income $10,843 4% Capital/Noncapital Grants $25,533 8% Education Sales & Service Sales & Services, Net $3,905 1% $4,397 1% Athletics, Net $2,413 1% Parking, Net $3,150 1% Dining, Net $12,744 5% Residential Life, Net $21,361 7% Student Tuition & Fees, Net $96,421 32% Capital Appropriations $3,147 1% State Appropriations $97,602 32% Additions to Endowments $3,937 1% Federal Grants & Contracts $5,770 2%

9 Page 9 Total Expenses by Nature 2014 Expense by Nature $284,519 ($ Thousands) Supplies and Materials $19,864 (7%) Services $50,936 (18%) Salaries and Benefits $159,922 (56%) Scholarships and Fellowships $18,327 (6%) Utilities $7,783 (3%) Depreciation $16,195 (6%) Other $10 (<0%) Interest $11,482 (4%)

10 Page 10 Financial Statement Audit Report Office of State Auditor financial statement audit link: pdf Distributed to external constituents and posted to UNCW Controller s webpage:

11 University of North Carolina Wilmington 2014 Financial Report

12 FINANCIAL REPORT 2014 UNIVERSITY OF NORTH CAROLINA WILMINGTON TABLE OF CONTENTS 1 Letter of Transmittal 3 Management s Discussion and Analysis 15 Independent Auditor s Report 19 Statement of Net Position 21 Statement of Revenues, Expenses, and Changes in Net Position 22 Statement of Cash Flows 24 Notes to Financial Statements 44 The Board of Trustees and University Officers 45 Supplemental Information 2014 University of North Carolina Wilmington Financial Report 0

13 A Letter of Transmittal To: Chancellor William A. Sederburg and the Board of Trustees of the University of North Carolina Wilmington I am pleased to present the 2014 Financial Report for the University of North Carolina Wilmington (University or UNCW). This report contains the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; and the Statement of Cash Flows. Supplemental information includes the letter of transmittal, the management discussion and analysis, footnotes, a listing of the University s Board of Trustees, University s officers and deans, and other information. Each statement is explained in further detail in the management discussion and analysis. I believe that the information within this financial report is accurate in all respects and fairly presents the University s financial position. I believe that our system of internal controls is sound and sufficient to disclose any material deficiencies to the auditors and the audit committee. Each basic financial statement is prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). The financial reports include the University financial statement as well as four blended component units including the Donald R. Watson Foundation, Inc., the UNCW Corporation, the UNCW Corporation II, and the UNCW Research Foundation. Although legally separate, these component units are reported as if they were part of the University based on the nature and significance of each entity s relationship to the University. The University s total net position increased $18.8 million. Unrestricted net position increased $17.6 million. A significant portion of this increase was the result of strong performance by housing and residence life operations. An $11.5 million decrease in capital assets was a result of significantly less spending on large capital projects and increased depreciation on newly capitalized buildings, including the Center for Marine Science MARBIONC facility (MARBIONC). UNCW celebrated the grand opening of MARBIONC at the CREST Millennial Campus (Campus for Research, Entrepreneurship, Service, and Teaching) in November The CREST Campus enhances the research, teaching, and service missions of UNCW with a focus on Marine Biotechnology. The state of the art MARBIONC Building is an interdisciplinary research facility that offers multi functional laboratories and specialized research equipment designed to catalyze university industry partnerships and promote economic development through translational research. The University marked another opening in September 2013 with the UNCW Center for Innovation and Entrepreneurship (CIE) ribbon cutting ceremony. CIE supports the development of new businesses and serves as a catalyst for economic development in southeastern North Carolina. CIE has entered into an exciting partnership with the Wireless Research Center of North Carolina in Wake Forest to further support research and commercialization of local technology based startups. The University of North Carolina Wilmington continues its record of national recognition for reputation, performance, and value with numerous rankings that recognize the University as a top tier educational institution. Princeton Review named UNCW one of the Best in the Southeast for the eleventh consecutive year. Colleges of Distinction recognized UNCW as a top public university, and Washington Monthly listed UNCW on its Best Bang for Your Buck list. Kiplinger s Personal Finance named UNCW on its list of 100 Best Values among public universities. U.S. News & World Report recognized UNCW as one of the best overall universities in the South with a top ten ranking as one of the best public institutions in the South, making UNCW among a very select group of universities that has sustained a rank in the top 10 over the last 16 years. Finally, U.S. News & World Report recognized UNCW on its list of Best Online Programs for Veterans University of North Carolina Wilmington Financial Report

14 UNCW received formal recognition for its quality with the reaffirmation of the University s Level V accreditation in December 2013 from the Southern Association of Colleges and Schools Commission on Colleges to award bachelor s, master s, and doctoral degrees. This is a tangible sign of UNCW s high quality, innovative spirit and deep commitment to its students and the community. As part of the accreditation process, the University launched an innovative Quality Enhancement Plan, ETEAL: Experiencing Transformative Education through Applied Learning, with the goal of impacting student experience through applied learning in the areas of critical thinking, thoughtful expression, and inquiry to prepare students for productive careers after graduation. Strides in the area of innovation continue to be a focus of the University. The University was recognized by IdeaScale, a leading software provider, as a winner of its Innovation Awards in the Efficiency Expert category. UNCW was recognized for maximizing its potential as a year round education provider as well as enacting numerous changes such as incentivizing faculty and students to participate in a non traditional classroom model and course opportunities that reach non traditional students. UNCW continues to expand its programs to meet the needs of today s students by providing flexible course delivery methods. The School of Nursing and Watson College of Education expanded on line courses to Registered Nurses seeking Bachelor of Science degrees and teachers pursuing Masters of Education with specialization in Elementary Education. The College of Health and Human Services Public Health Studies Program was approved as a standalone baccalaureate program. Finally, the College also announced plans to offer a part time Master of Social Work designed for working professionals beginning in the fall of Philanthropic donations and gift commitments to UNCW exceeded $11.3 million during the fiscal year 2014, a 19% increase over the previous year. UNCW was honored to receive one of the largest gifts in its history, a $2.5 million endowment gift from the family of the late Bill and Barbara Dobo. The portfolio of endowments increased 15% during the year, after receiving additions of $4.1 million, earning $9.7 million after fees and paying out $2.3 million towards scholarships and university programs. Its valuation at June 30, 2014 was $85.3 million. The performance of these invested endowment gifts reflect an annual return of 14.6%, which easily exceeds the fund's primary return objective of 6.6%. The endowment fund has also been successful in achieving its long term return objective over the three, five, and ten year time horizons. The ten year annualized return of 8.8% ranks in the top quartile of the BNY Mellon Endowment and Foundation Universe and, more importantly, exceeds the return objective of the fund by 2.0%. UNCW s sustained improved financial resources, enrollment growth and favorable operating performance resulted in a revised outlook from Moody s Investor Service from stable to positive, with an affirmation of the University s existing A1 rating. This rating is a reflection of UNCW s effective resource management and leadership in higher education financial management. While the University of North Carolina Wilmington continues to face uncertainty with regard to the level of continued state funding, the University remains committed to its mission of teaching excellence, a strong academic and applied learning experience for all students and meaningful engagement in the region and state through research and service. Sincerely, Rick N. Whitfield, Ed.D. Vice Chancellor for Business Affairs 2014 University of North Carolina Wilmington Financial Report 2

15 Management s Discussion and Analysis Financial Analysis The University of North Carolina Wilmington (University) provides the following Management s Discussion and Analysis (MD&A) as an overview of the financial activities for the fiscal year ended June 30, The MD&A identifies significant transactions that have financial impact and highlights favorable and unfavorable trends. Comparative data for the previous year is presented to provide a better understanding of the financial information. Using the Financial Statements The University s financial report includes three basic comprehensive financial statements that depict the financial activity and fiscal condition of the University for the current year: the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; and the Statement of Cash Flows. These financial statements are prepared in accordance with Government Accounting Standards Board (GASB) principles. The accrual basis of accounting has been used to prepare the statements. This method of accounting requires that revenues and assets be recognized when the service is provided. Expenses and liabilities are recognized when others provide services, regardless of when cash is exchanged. The Statement of Net Position includes all University assets and liabilities. The University s net position (the monetary difference between total assets and total liabilities) is one indicator of the University s financial viability. Over time, changes in net position provide information on the improvement or erosion of the University s financial condition when considered with non financial facts such as enrollment levels and the condition of facilities. The Statement of Revenues, Expenses, and Changes in Net Position presents the revenues earned and expenses incurred during the fiscal year. Financial activities are reported as either operating or nonoperating. GASB Statement No. 35 classifies state appropriations and gifts as nonoperating revenues. With state appropriations and gifts being classified as nonoperating revenues, most public institutions will report an operating deficit. As of July 1, 2013, the University blended the component units, UNCW Corporation II (Corporation II) and UNCW Research Foundation (Research Foundation), which were previously reported as related parties. The University's net position increased $135,907 as a result of this change. An important factor to consider when evaluating the financial viability of the University is the ability to meet financial obligations as they mature. The Statement of Cash Flows presents information that allows the reader to evaluate the University s ability to meet its financial obligations on a current basis. Financial Highlights For the fiscal year ended June 30, 2014, the North Carolina General Assembly (General Assembly) imposed a permanent budget reduction of $218 thousand, however, the University did receive state appropriations funding for enrollment growth of $4.8 million, operations funding for new buildings of $347 thousand, and need based student financial aid of $800 thousand as part of the campus initiated tuition increases. In addition, the University received funding of $200 thousand for a predictive analytics request as part of the President s Strategic Initiatives Allocation from the General Assembly and the Board of Governors five year strategic plan ( ). The University led predictive analytics project includes design and construction of a predictive model that supports strategic planning and management activities in a scalable form adaptable for use by other UNC campuses. Subsequent to receiving the predictive analytics funding the State called for a one time reversion of expenditures for the entire UNC system. The University reversion allotment of $1.3 million included the predictive analytics funding of $200 thousand University of North Carolina Wilmington Financial Report

16 State Appropriations & State Aid, Tuition & Fees and State Appropriations & State Aid per FTE $10,000 $ Millions ,998 7, , , , ,080 7, , ,522 7,445 $9,000 $8,000 $7,000 $6,000 $5,000 $4, $3, $2,000 State Appropriations & State Aid Tuition & Fees State Appropriations & State Aid/FTE While tuition and fee revenue has continued to rise over the last ten years, state appropriations and state aid have held relatively steady the last five years. With student enrollment steadily increasing each year, state appropriation and state aid per student full time equivalent have decreased as appropriations have not increased at the same rate. During the fiscal year ended June 30, 2014, the State did not appropriate salary increases for University employees but did allocate five days of bonus leave that had to be taken by June 30, The University s endowment fund investment rate of return of 14.6% exceeded the fund s primary return objective of 6.6% for the fiscal year ended June 30, The endowment has been successful in achieving its long term objective with a ten year annualized return of 8.8% and an annualized return since inception of 7.8%. Both returns surpass the long term objective of 4.5% plus inflation. This ten year annualized return ranks in the top quartile of the BNY Mellon Endowment and Foundation Universe and, more importantly, exceeds the return objective of the endowment by 2.0%. Endowment investments total net position increased 15% during to $85.3 million at June 30, The endowment received additions of $4.1 million, primarily from new gifts of $3.9 million. The endowment s net earnings, after investment expenses and administrative fees, approximated $9.7 million. Scholarships and university programs received $2.3 million from those earnings University of North Carolina Wilmington Financial Report 4

17 Market Value Endowment Assets $ Millions Year During this fiscal year, the endowment purchased real estate property from The Foundation of UNCW, Inc. for $2.0 million with unrestricted quasi endowment funds. The property is used for student parking for the University. Construction in progress decreased $30.4 million when the Center for Marine Science MARBIONC facility (MARBIONC) received a certificate of occupancy and was put into service in November Statement of Net Position The Statement of Net Position presents the assets (current and noncurrent), deferred outflows, liabilities (current and noncurrent), deferred inflows, and net position (total assets plus deferred outflows minus total liabilities and deferred inflows) of the University. This statement provides a fiscal snapshot of the University s financial position as of June 30, The data provides readers of this statement information on assets available to continue operations; amounts due to vendors, investors, and lending institutions; and the assets available for expenditure by the University University of North Carolina Wilmington Financial Report

18 Condensed Statement of Net Position June 30, as Indicated (Restated) % Change Change Assets Current Assets $ 119,562,617 $ 103,188,733 $ 16,373, % Noncurrent Assets 98,916,624 92,076,524 6,840, % Capital Assets, Net 488,086, ,581,996 (11,495,271) 2.3% Total Assets 706,565, ,847,253 11,718, % Deferred Outflows of Resources Deferred Loss on Refunding 2,174,373 2,369,732 (195,359) 8.2% Liabilities Current Liabilities 19,368,069 18,023,465 1,344, % Noncurrent Liabilities 244,223, ,835,335 (8,612,069) 3.4% Total Liabilities 263,591, ,858,800 (7,267,465) 2.7% Deferred Inflows of Resources Deferred Gain on Refunding 0.0% Net Position Net Investment in Capital Assets 260,491, ,003,692 (11,512,188) 4.2% Restricted Nonexpendable 45,850,210 43,670,715 2,179, % Restricted Expendable 38,085,095 27,596,752 10,488, % Unrestricted 100,722,195 83,087,026 17,635, % Total Net Position $ 445,149,004 $ 426,358,185 $ 18,790, % On June 30, 2014, total University assets were $706.6 million. The largest asset categories were the University s cash and cash equivalents of $129.7 million, endowment investments of $80.2 million, and capital assets, net, of $488.1 million. Carryforwards of $9.6 million were the largest driver in the 15.9% increase in current assets. The Office of Housing and Residence Life s increase to unrestricted net position of $6.7 million was the biggest contributor to the $17.6 million change in unrestricted net position. The $11.5 million decrease in capital assets, net, and net investment in capital assets, was the result of increased depreciation on newly capitalized buildings, including MARBIONC, and significantly less spending on large capital projects University of North Carolina Wilmington Financial Report 6

19 Statement of Revenues, Expenses, and Changes in Net Position Changes in total net position as presented on the Statement of Net Position section are based on the activity reported in the Statement of Revenues, Expenses, and Changes in Net Position. The purpose of this statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, both operating and nonoperating, as well as any other revenues, expenses, gains and losses received or expended by the University. Operating revenues are received for providing goods and services to the various customers and constituencies of the University. Operating expenses are used to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University. Nonoperating revenues are revenues received for which goods and services are not provided; e.g., state appropriations, noncapital gifts and grants, and investment income. Nonoperating expenses include interest and fees on debt, loss on sale of assets, and other miscellaneous expenses; i.e., expenses not involved in the normal operations of the University University of North Carolina Wilmington Financial Report

20 Condensed Statement of Revenues, Expenses, and Changes in Net Position For Year Ended June 30, as Indicated 2013 % 2014 (Restated) Change Change Operating Revenues Student Tuition and Fees, Net $ 96,421,397 $ 93,042,367 $ 3,379, % Sales and Service, Net 47,969,874 44,252,719 3,717, % Grants and Contracts 7,880,202 10,503,238 (2,623,036) 25.0% Other Operating Revenues 5,816,180 6,242,816 (426,636) 6.8% Total Operating Revenues 158,087, ,041,140 4,046, % Operating Expenses Salaries and Benefits 159,921, ,785,894 3,135, % Supplies and Materials 19,863,947 21,320,365 (1,456,418) 6.8% Services 50,936,497 50,215, , % Scholarships and Fellowships 18,327,034 17,661, , % Utilities 7,783,473 7,344, , % Depreciation 16,194,951 14,585,939 1,609, % Total Operating Expenses 273,027, ,913,557 5,113, % Operating Loss (114,939,857) (113,872,417) (1,067,440) 0.9% Nonoperating Revenues (Expenses) State Appropriation 97,601,950 96,878, , % Noncapital Gifts and Grants 26,698,543 27,501,468 (802,925) 2.9% Investment Income, Net 10,842,857 8,560,744 2,282, % Interest and Fees on Debt (11,482,010) (10,889,530) (592,480) 5.4% Federal Interest Subsidy on Debt 822, , , % Other Nonoperating (Expenses) Revenues (9,157) 213,938 (223,095) 104.3% Other Revenues Capital Appropriations 3,146,783 3,146, % Capital Grants 2,173,028 17,457,010 (15,283,982) 87.6% Additions to Endowments 3,936,562 1,749,544 2,187, % Total Net Nonoperating and Other Revenues 133,730, ,093,648 (8,362,972) 5.9% Increase in Net Position 18,790,819 28,221,231 (9,430,412) 33.4% Net Position Beginning of Year 426,358, ,136,954 28,221, % Net Position End of Year $ 445,149,004 $ 426,358,185 $ 18,790, % Reconciliation of Change in Net Position Total Revenues 303,309, ,024,318 (3,714,822) 1.2% Less: Total Expenses 284,518, ,803,087 5,715, % Increase in Net Position $ 18,790,819 $ 28,221,231 $ (9,430,412) 33.4% Student tuition and fees of $96.4 million and sales and services from auxiliary enterprises of $48.0 million accounted for 91.3% of the University s operating revenues. Sales and Service increased 8.4% due to increased auxiliary enterprise revenue primarily from the areas of residential life, dining, and parking University of North Carolina Wilmington Financial Report 8

21 Grants and contracts revenue decreased 25.0% to $7.9 million due to the federal government s delay in funding new federal awards in conjunction with the expiration of several large federal awards. 45 Grants & Contracts Revenue (Includes Noncapital Grants State Passthrough for ) $ Millions State Passthrough Grants & Contracts Year The University received $3.1 million in state capital appropriations for repair and renovations during the fiscal year. Capital grant revenue decreased 87.6% after funding was utilized from the federal NIST grant for the building of MARBIONC and state capital aid was expended for the completion of the Teaching Lab building. The 26.7% increase in investment income, net, is primarily due to investment earnings of $10.2 million generated in 2014 as compared to $8.0 million in This increase was a result of a 14.6% return on investment versus 12.9% in the previous year Revenue by Source $303,309 ($ Thousands) State Appropriations $97,602 (32%) Federal Grants & Contracts $5,770 (2%) Capital Appropriations $3,147 (1%) Additions to Endowments $3,937 (1%) Sales & Services, Net $47,970 (16%) Capital/Noncapital Grants $25,533 (8%) Other $22,929 (8%) Student Tuition & Fees, Net $96,421 (32%) Investment Income $10,843 (4%) Noncapital Gifts, Net $3,339 (1%) Non Federal Grants & Contracts $2,111 (1%) Other Revenues $6,636 (2%) University of North Carolina Wilmington Financial Report

22 The decrease of $1.5 million in supplies and materials expenses comes after a 16.4% increase in 2013 for new buildings. Occupancy in new buildings, such as MARBIONC, contributed to the increase of 6.0% in utilities expense. The 11.0% increase in depreciation expense reflects the full year depreciation of assets acquired in 2013, including the Teaching Lab building and Student Recreation Center expansion, as well as MARBIONC, which was capitalized in Expense by Nature $284,519 ($ Thousands) Supplies and Materials $19,864 (7%) Services $50,936 (18%) Salaries and Benefits $159,922 (56%) Scholarships and Fellowships $18,327 (6%) Utilities $7,783 (3%) Depreciation $16,195 (6%) Interest $11,482 (4%) Other $10 (<0%) Statement of Cash Flows The Statement of Cash Flows provides information about cash receipts and cash payments during the year. The Statement of Cash Flows also helps users assess the University s: Ability to generate future net cash flows Ability to meet its obligations as they come due Need for external financing Condensed Statement of Cash Flows For Year Ended June 30, as Indicated (Restated) % Change Change Cash Provided (Used) by: Operating Activities $ (93,315,115) $ (99,397,122) $ 6,082, % Noncapital Financing Activities 126,341, ,935,017 3,406, % Capital Financing Activities (18,905,410) (35,799,240) 16,893, % Investing Activities 1,094,517 (1,099,597) 2,194, % Net Change In Cash 15,215,809 (13,360,942) 28,576, % Cash Beginning of Year 114,499, ,860,237 (13,360,942) 10.4% Cash Ending of Year $ 129,715,104 $ 114,499,295 $ 15,215, % 2014 University of North Carolina Wilmington Financial Report 10

23 Operating Activities Major cash sources were student tuition and fees of $97.4 million, sales and services of $47.9 million, and contracts and grants of $8.1 million. Major cash uses were compensation to employees of $159.8 million, of which $87.2 million was related to instruction, payments to vendors and suppliers for goods and services of $75.8 million, and disbursements to students for scholarships and awards of $18.3 million. 100 Instruction Expense $ Millions Year Noncapital Financial Activities The major cash inflow was state appropriations of $97.6 million. While GASB standards require this revenue to be classified as nonoperating, these funds are essentially used to maintain operations. Other noncapital inflows included gifts and grants received of $30.1 million. Capital Financing Activities Cash provided included capital appropriations of $3.1 million and capital grants of $2.0 million. Cash used was primarily for the acquisition of capital assets of $7.2 million and the repayment of principal and interest on capital debt of $18.0 million University of North Carolina Wilmington Financial Report

24 Investing Activities Cash provided included sales and maturities of investments of $2.6 million and investment income of $8.2 million. Cash used reflects the purchase of investments and related fees of $9.8 million. Capital Assets and Debt Administration Capital Assets The University had $488.1 million invested in capital assets at June 30, 2014, as reported in the table below. This represents a decrease of $11.5 million from Capital Assets Net of Depreciation June 30, as Indicated (Restated) Change Land $ 9,263,459 $ 9,263,459 $ 0 Art, Literature and Artifacts 1,681,375 1,673,320 8,055 Construction In Progress 1,634,724 30,512,848 (28,878,124) Buildings, Net 431,781, ,804,348 17,977,137 Machinery and Equipment, Net 15,072,265 15,956,896 (884,631) Infrastructure, Net 28,653,417 28,371, ,292 Total Capital Assets $ 488,086,725 $ 499,581,996 $ (11,495,271) The net increase in buildings represents the completion and subsequent occupancy of the MARBIONC facility. Construction in Progress decreased as a result of the addition of the aforementioned building. Debt As of June 30, 2014, the University s $237.3 million in long term debt included outstanding revenue bonds payable of $106.0 million, certificates of participation payable of $123.6 million, and notes payable of $7.7 million. $300 Debt Analysis $250 $ $ Millions $ $ $ $ There have been no significant changes in credit ratings or debt limitations that will affect future financing for the University. Year 2014 University of North Carolina Wilmington Financial Report 12

25 Economic Forecast For fiscal year , the General Assembly approved funding for enrollment growth of $6.0 million. Permanent reductions to state appropriations as approved by the General Assembly constitute $1.1 million, or 1.2% of appropriations. The General Assembly provided a flat $1,000 salary increase for SPA employees and a total of $246 thousand for all EPA employees in fiscal year The University is planning to use the EPA allocation plus other university resources to match the $1,000 SPA salary increase for faculty and non faculty EPA employees. In addition, the General Assembly authorized five additional days of bonus leave which are eligible to be rolled over if unused at year end. Freshman Fall Enrollment & SAT Scores ,000 1,215 Numbers of Pesons 10,000 8,000 6,000 4,000 8,700 5,217 8,820 5,377 8,066 5,033 8,740 5,098 9,311 5,449 9,283 5,402 9,759 5,517 10,339 5,471 11,184 6,061 10,838 6,160 1,195 1,175 1,155 1,135 1,115 SAT Score 2,000 1,897 1,943 1,987 1,920 2,073 1,949 1,992 1,980 2,053 1,939 1, ,075 Number of Applicants Number Accepted Number Enrolled SAT Scores The University continues to face reductions to state appropriations, limited tuition increases, marginal performance funding, and reductions in federal funding. Efforts continue to protect the core academic and instruction service levels to our students with an emphasis on administrative efficiencies and cost elimination. A new forward looking Unified Budget Planning process was implemented in fiscal year 2014 to strategically evaluate and plan core objectives and resource allocation across campus. A second guaranteed energy savings performance contract is under review. This is a continuation of the University s efforts to provide additional funding to further reduce energy consumption and related energy costs. Federal funding for research and sponsored programs has either flattened or diminished given the results of the Sequester and delays in federal budget negotiations. While proposal submission is at an all time high, this revenue source is projected to remain flat over the next few years after a long period of sustained growth. This change has increased the competitiveness for federal funding and will challenge the University s opportunities for growth. Funding for indirect cost recoveries follow each direct dollar of research and sponsored programs support. Likewise, indirect costs are negatively impacted and thereby reduce the investments made and support provided to the research enterprise. As the nation ends its fifth year of economic expansion following the Great Recession, the rate of growth has been slow and is forecasted to continue at this pace. While deals on the federal budget and debt ceiling have removed some economic uncertainty, the U.S. Federal Reserve Bank has begun a slow process to normalize monetary policy and taper quantitative easing. Over the past year, both the U.S. and North Carolina unemployment rates have fallen. Despite moderate economic growth, North Carolina s state budget remains tight with further pressure placed on public universities to limit in state tuition increases and reduce operating budgets University of North Carolina Wilmington Financial Report

26 Year Student Headcount and FTE ,110 13, ,880 13, ,332 13, ,220 13, ,060 12, ,742 12,643 11,358 FTE ,180 Headcount ,255 12, ,021 11, ,767 11,574 8,000 9,000 10,000 11,000 12,000 13,000 14,000 The University is well positioned to continue to attract, retain and matriculate well educated students by offering an excellent academic learning experience supported by quality teaching, research and service. The University is focused on enhancing and developing diverse revenue sources including distance education offerings, new academic programs, innovation and entrepreneurial activities, and auxiliary services to supplement continued contracting levels of state funding. The University will continue to emphasize prudent resource allocation, cost containment measures, implementation of efficiency initiatives and continuous assessment of processes to efficiently and effectively meet the University s mission, goals and objectives. Contacting the University s Financial Management This financial report is designed to provide our students, citizens, investors, and creditors with a general overview of the University s finances and demonstrate accountability of all funds. Additional financial information may be obtained by accessing the Controller s Office web page or contacting the Controller s Office at (910) University of North Carolina Wilmington Financial Report 14

27 Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) Internet INDEPENDENT AUDITOR S REPORT Board of Trustees University of North Carolina Wilmington Wilmington, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the University of North Carolina Wilmington, a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the State of North Carolina, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the Donald R. Watson Foundation, Inc., the UNCW Corporation, the UNCW Corporation II, or the UNCW Research Foundation, which collectively represent 19 percent, less than 1 percent, and 2 percent, respectively, of the assets, net position, and revenues of the University. Those statements were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the blended component units, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the blended component units were not audited in accordance with Government Auditing Standards University of North Carolina Wilmington Financial Report

28 INDEPENDENT AUDITOR S REPORT (CONTINUED) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of University of North Carolina Wilmington as of June 30, 2014, and the changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 17 to the financial statements, during the year ended June 30, 2014, the University of North Carolina Wilmington adopted Governmental Accounting Standards Board Statement No. 65 Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters - Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information The transmittal and supplementary sections are presented for purposes of additional analysis and are not required part of the basic financial statements. This information is the responsibility of 2014 University of North Carolina Wilmington Financial Report 16

29 INDEPENDENT AUDITOR S REPORT (CONTINUED) management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The transmittal and supplementary sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2014 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control over financial reporting and compliance. The report on internal control and compliance has been issued under separate cover in the Financial Statement Audit Report of the University of North Carolina Wilmington published by this office. Beth A. Wood, CPA State Auditor Raleigh, North Carolina November 21, University of North Carolina Wilmington Financial Report

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31 Statement of Net Position June 30, 2014 ASSETS Current Assets: Cash and Cash Equivalents $ 100,713,018 Restricted Cash and Cash Equivalents 14,401,915 Receivables, Net (Note 4) 3,444,957 Inventories 327,022 Prepaid Items 6,941 Notes Receivable, Net (Note 4) 668,764 Total Current Assets 119,562,617 Noncurrent Assets: Restricted Cash and Cash Equivalents 14,600,171 Receivables, Net (Note 4) 211,572 Prepaid Items 1,195 Endowment Investments 80,159,221 Notes Receivable, Net (Note 4) 3,944,465 Capital Assets Nondepreciable (Note 5) 12,579,558 Capital Assets Depreciable, Net (Note 5) 475,507,167 Total Noncurrent Assets 587,003,349 Total Assets 706,565,966 DEFERRED OUTFLOWS OF RESOURCES Deferred Loss on Refunding 2,174,373 LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities (Note 6) 3,541,055 Due to Primary Government 1,365,193 Deposits Payable 5,921 Unearned Revenue 5,288,211 Interest Payable 2,133,921 Long Term Liabilities Current Portion (Note 7) 7,033,768 Total Current Liabilities 19,368,069 Noncurrent Liabilities: Accounts Payable (Note 6) 330,000 Funds Held for Others 791,607 U.S. Government Grants Refundable 4,325,528 Long Term Liabilities, Net (Note 7) 238,776,131 Total Noncurrent Liabilities 244,223,266 Total Liabilities 263,591,335 DEFERRED INFLOWS OF RESOURCES Deferred Gain on Refunding University of North Carolina Wilmington Financial Report

32 Statement of Net Position June 30, 2014 NET POSITION Net Investment in Capital Assets 260,491,504 Restricted for: Nonexpendable: Scholarships and Fellowships 20,441,827 Research 1,827,040 Endowed Professorships 10,843,466 Departmental Uses 11,864,747 Loans 873,130 Expendable: Scholarships and Fellowships 13,223,393 Research 1,178,256 Endowed Professorships 6,668,731 Departmental Uses 7,782,985 Loans 648,184 Capital Projects 8,372,658 Debt Service 210,888 Unrestricted 100,722,195 Total Net Position $ 445,149,004 The accompanying notes to the financial statements are an integral part of this statement University of North Carolina Wilmington Financial Report 20

33 Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2014 REVENUES Operating Revenues: Student Tuition and Fees, Net (Note 9) $ 96,421,397 Federal Grants and Contracts 5,769,590 State and Local Grants and Contracts 1,006,363 Nongovernmental Grants and Contracts 1,104,249 Sales and Services, Net (Note 9) 47,969,874 Interest Earnings on Loans 6,100 Other Operating Revenues 5,810,080 Total Operating Revenues 158,087,653 EXPENSES Operating Expenses: Salaries and Benefits 159,921,608 Supplies and Materials 19,863,947 Services 50,936,497 Scholarships and Fellowships 18,327,034 Utilities 7,783,473 Depreciation 16,194,951 Total Operating Expenses 273,027,510 Operating Loss (114,939,857) NONOPERATING REVENUES (EXPENSES) State Appropriations 97,601,950 Noncapital Grants Student Financial Aid 23,359,488 Noncapital Gifts, Net (Note 9) 3,339,055 Investment Income (Net of Investment Expense of $207,717) 10,842,857 Interest and Fees on Debt (11,482,010) Federal Interest Subsidy on Debt 822,120 Other Nonoperating Expenses (9,157) Net Nonoperating Revenues 124,474,303 Income Before Other Revenues 9,534,446 Capital Appropriations 3,146,783 Capital Grants 2,173,028 Additions to Endowments 3,936,562 Increase in Net Position 18,790,819 NET POSITION Net Position July 1, 2013, as Restated (Note 17) 426,358,185 Net Position June 30, 2014 $ 445,149,004 The accompanying notes to the financial statements are an integral part of this statement University of North Carolina Wilmington Financial Report

34 Statement of Cash Flows For the Fiscal Year Ended June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers $ 153,425,544 Payments to Employees and Fringe Benefits (159,825,499) Payments to Vendors and Suppliers (75,826,051) Payments for Scholarships and Fellowships (18,327,034) Loans Issued (700,854) Collection of Loans 844,711 Interest Earned on Loans 15,847 Other Receipts 7,078,221 Net Cash Used by Operating Activities (93,315,115) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 97,601,950 Noncapital Grants Student Financial Aid 23,383,942 Noncapital Gifts 2,803,132 Additions to Endowments 3,936,562 William D. Ford Direct Lending Receipts 70,229,155 William D. Ford Direct Lending Disbursements (70,229,155) Related Activity Agency Disbursements (1,485,161) Other Receipts 101,392 Net Cash Provided by Noncapital Financing Activities 126,341,817 CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES State Capital Appropriations 3,146,783 Capital Grants 2,048,633 Proceeds from Sale of Capital Assets 226,787 Acquisition and Construction of Capital Assets (7,158,822) Principal Paid on Capital Debt and Leases (6,597,179) Interest and Fees Paid on Capital Debt and Leases (11,393,732) Federal Interest Subsidy on Debt Received 822,120 Net Cash Used by Capital Financing and Related Financing Activities (18,905,410) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 2,646,005 Investment Income 8,212,936 Purchase of Investments and Related Fees (9,764,424) Net Cash Provided by Investing Activities 1,094,517 Net Increase in Cash and Cash Equivalents 15,215,809 Cash and Cash Equivalents July 1, ,499,295 Cash and Cash Equivalents June 30, 2014 $ 129,715, University of North Carolina Wilmington Financial Report 22

35 Statement of Cash Flows For the Fiscal Year Ended June 30, 2014 RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (114,939,857) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 16,194,951 Allowances and Write Offs 24,490 Nonoperating Other Income 450,402 Receivables, Net 350,279 Due from State of North Carolina Component Units 63,283 Due from University Component Units 1,278,445 Inventories (16,532) Prepaid Items (6,941) Notes Receivable, Net 143,857 Accounts Payable and Accrued Liabilities 1,269,483 Due to Primary Government 1,365,193 Unearned Revenue 770,274 Compensated Absences (268,363) Deposits Payable 5,921 Net Cash Used by Operating Activities $ (93,315,115) RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets: Cash and Cash Equivalents $ 100,713,018 Restricted Cash and Cash Equivalents 14,401,915 Noncurrent Assets: Restricted Cash and Cash Equivalents 14,600,171 Total Cash and Cash Equivalents June 30, 2014 $ 129,715,104 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets Acquired through the Assumption of a Liability $ 1,170,170 Assets Acquired through a Gift 450,402 Change in Fair Value of Investments 2,690,776 Loss on Disposal of Capital Assets (110,549) Amortization of Bond Premiums and Deferred Loss on Refunding (206,087) The accompanying notes to the financial statements are an integral part of this statement University of North Carolina Wilmington Financial Report

36 Notes to the Financial Statements June 30, 2014 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP), the financial reporting entity includes both the primary government and all of its component units. An organization other than a primary government serves as a nucleus for a reporting entity when it issues separate financial statements. The University of North Carolina Wilmington is a constituent institution of the multi campus University of North Carolina System, which is a component unit of the State of North Carolina and an integral part of the State s Comprehensive Annual Financial Report. The accompanying financial statements present all funds belonging to the University and its component units. While the Board of Governors of the University of North Carolina System has ultimate responsibility, the Chancellor, the Board of Trustees, and the Board of Trustees of the Endowment Fund have delegated responsibilities for financial accountability of the University s funds. The University s component units are blended in the University s financial statements. Blended Component Units Although legally separate, the Donald R. Watson Foundation, Inc. (Watson Foundation), the UNCW Corporation (Corporation), the UNCW Corporation II (Corporation II), and the UNCW Research Foundation (Research Foundation), component units of the University, are reported as if they were part of the University. The Watson Foundation was organized to support charitable, religious, scientific and educational institutions located in the State of North Carolina provided that each supported organization is tax exempt and eligible to receive charitable donations. The Watson Foundation is a public not for profit organization that reports its financial results under Financial Accounting Standards Board (FASB) Statements. The Watson Foundation is governed by a five member board of which three are appointed by the Board of Trustees, and two are appointed by the benefactor. Because a majority of the directors of the Watson Foundation are appointed by the members of the University of North Carolina Wilmington s Board of Trustees and the Watson Foundation s primary purpose is to benefit the University of North Carolina Wilmington, its financial statements have been blended with those of the University. The Corporation includes the activities of the single member entities, UNCW Corporation Housing I, LLC, and UNCW Corporation Housing II, LLC. The Corporation was organized to enhance the University of North Carolina Wilmington s educational mission, including overseeing and assisting in the acquisition and financing of capital assets for the University. The Corporation is a public not for profit organization that reports its financial results under Governmental Accounting Standard Board (GASB) Statements. The Corporation is governed by a six member board of which three are delegates of the University. The remaining three positions are filled by persons external to the University s operations and business functions and are appointed by the UNCW Chancellor to serve on the board. As the Corporation s sole purpose is to benefit the University of North Carolina Wilmington, its financial statements have been blended with those of the University. The Corporation II includes the activities of the single member entities, UNCW Corporation Oleander One, LLC, and UNCW Corporation College Station, LLC. The Corporation II was organized to enhance the University of North Carolina Wilmington s educational mission, including constructing or managing facilities for the University. These entities acquire real property that is used solely by the University for auxiliary support, off campus parking, or other agreed upon activities. The Corporation II is a public not for profit 2014 University of North Carolina Wilmington Financial Report 24

37 organization that reports its financial results under Governmental Accounting Standard Board (GASB) Statements. The Corporation II is governed by a seven member board of which four are delegates of the University. The remaining three positions are filled by persons external to the University s operations and business functions and are appointed by the UNCW Chancellor to serve on the board. As the Corporation II s sole purpose is to benefit the University of North Carolina Wilmington, its financial statements have been blended with those of the University. The Research Foundation includes the activities of the single member entities, UNCW Corporation Research I, LLC, MARBIONC Development Group, LLC, The CREST Millennial Campus, LLC, and the UNCW Entrepreneurship Center, LLC. The Research Foundation was organized to enhance the University of North Carolina Wilmington s educational mission. These entities, through collaborative research relationships, pursue commercialization opportunities and the economic development of research discoveries, materials and intellectual properties for the benefit of the University. The Research Foundation is a public not forprofit organization that reports its financial results under Governmental Accounting Standard Board (GASB) Statements. The Research Foundation is governed by a four member board, all of which are delegates of the University. As the Research Foundation s sole purpose is to benefit the University of North Carolina Wilmington, its financial statements have been blended with those of the University. Separate financial statements for the Watson Foundation, the Corporation, the Corporation II, and the Research Foundation may be obtained from the Office of Associated Entities, 601 S. College Road, Wilmington, NC , or by calling (910) Other related foundations and similar nonprofit corporations for which the University is not financially accountable are not part of the accompanying financial statements. Condensed combining information regarding blended component units is provided in Note 16. B. Basis of Presentation The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB. Pursuant to the provisions of GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, the full scope of the University s activities is considered to be a single business type activity and accordingly, is reported within a single column in the basic financial statements. C. Basis of Accounting The financial statements of the University have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows. Nonexchange transactions, in which the University receives (or gives) value without directly giving (or receiving) equal value in exchange, include state appropriations, certain grants, and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met, if probable of collection. D. Cash and Cash Equivalents This classification includes undeposited receipts, petty cash, cash on deposit with private bank accounts, cash on deposit with fiscal agents, and deposits held by the State Treasurer in the Short Term Investment Fund (STIF). The STIF maintained by the State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty. E. Investments Investments generally are reported at fair value, as determined by quoted market prices or estimated amounts determined by management, if quoted market prices are not available. The fair value for University of North Carolina Wilmington Financial Report

38 investments in the UNC Investment Fund was based on amounts reported to the University by UNC Management Company, Inc. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments. The net increase (decrease) in the fair value of investments is recognized as a component of investment income. Real estate not held by a governmental external investment pool, and other asset holdings are reported at cost, if purchased, or at fair value or appraised value at date of gift, if donated. Endowment investments include the principal amount of gifts and bequests that, according to donor restrictions, must be held in perpetuity or for a specified period of time, along with any accumulated investment earnings on such amounts. Further, endowment investments also include amounts internally designated by the University for investment in an endowment capacity (i.e. quasi endowments), along with accumulated investment earnings on such amounts. Land and other real estate held as investments by endowments are reported at fair value, consistent with how investments are generally reported. F. Receivables Receivables consist of tuition and fees charged to students, charges for auxiliary enterprises sales and services, and interest receivable for student loans. Receivables also include amounts due from the federal government, state and local governments, private sources in connection with reimbursement of allowable expenditures made pursuant to contracts and grants, and pledges that are verifiable, measurable, and expected to be collected and available for expenditures for which the resource provider s conditions have been satisfied. Receivables are recorded net of estimated uncollectible amounts. G. Inventories Inventories, consisting of expendable supplies, are valued at cost using the first in, first out method. H. Capital Assets Capital assets are stated at cost at date of acquisition or fair value at date of donation in the case of gifts. The value of assets constructed includes all material direct and indirect construction costs. Interest costs incurred are capitalized during the period of construction. The University capitalizes assets that have a value or cost of $5,000 or greater at the date of acquisition and an estimated useful life of more than one year. Depreciation is computed using the straight line method over the estimated useful lives of the assets, generally 15 to 50 years for general infrastructure, 10 to 50 years for buildings, and 4 to 50 years for equipment. The Randall Library Special collection is capitalized at cost or fair value at the date of donation. This collection is considered inexhaustible and is therefore not depreciated. I. Restricted Assets Certain resources are reported as restricted assets because restrictions on asset use change the nature or normal understanding of the availability of the asset. Resources that are not available for current operations and are reported as restricted include resources restricted for the acquisition or construction of capital assets, resources legally segregated for the payment of principal and interest as required by debt covenants, unspent debt proceeds, and endowment and other restricted investments. J. Noncurrent Long Term Liabilities Noncurrent long term liabilities include principal amounts of revenue bonds payable, certificates of participation, notes payable, and compensated absences that will not be paid within the next fiscal year. Revenue bonds payable are reported net of unamortized premiums. The University amortizes bond premiums over the life of the bonds using the straight line method. Deferred charges on refundings are amortized over the life of the old debt or new debt (whichever is shorter) using the straight line method, 2014 University of North Carolina Wilmington Financial Report 26

39 and are included as deferred outflows or deferred inflows of resources on the Statement of Net Position. Issuance costs are expensed. K. Compensated Absences The University s policy is to record the cost of vacation leave when earned. The policy provides for a maximum accumulation of unused vacation leave of 30 days which can be carried forward each January 1 or for which an employee can be paid upon termination of employment. When classifying compensated absences into current and noncurrent, leave is considered taken using a last in, first out (LIFO) method. Also, any accumulated vacation leave in excess of 30 days at year end is converted to sick leave. Under this policy, the accumulated vacation leave for each employee at June 30 equals the leave carried forward at the previous December 31 plus the leave earned, less the leave taken between January 1 and June 30. In addition to the vacation leave described above, compensated absences include the accumulated unused portion of the special annual leave bonuses awarded by the North Carolina General Assembly. The bonus leave balance on December 31 is retained by employees and transferred into the next calendar year. It is not subject to the limitation on annual leave carried forward described above and is not subject to conversion to sick leave. There is no liability for unpaid accumulated sick leave because the University has no obligation to pay sick leave upon termination or retirement. However, additional service credit for retirement pension benefits is given for accumulated sick leave upon retirement. L. Net Position The University s net position is classified as follows: Net Investment in Capital Assets This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of Net Investment in Capital Assets. Additionally, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of capital assets or related debt are also included in this component of net position. Restricted Net Position Nonexpendable Nonexpendable restricted net position includes endowments and similar type assets whose use is limited by donors or other outside sources, and, as a condition of the gift, the principal is to be maintained in perpetuity. Restricted Net Position Expendable Expendable restricted net position includes resources for which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external parties. Unrestricted Net Position Unrestricted net position includes resources derived from student tuition and fees, sales and services, unrestricted gifts, royalties, and interest income. Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based within the departmental management system in place at the University. For projects funded by tax exempt debt proceeds and other sources, the debt proceeds are always used first. Both restricted and unrestricted net position include consideration of deferred outflows and inflows of resources. M. Scholarship Discounts Student tuition and fees revenues and certain other revenues from University charges are reported net of scholarship discounts in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. The scholarship discount is the difference between the actual charge for goods University of North Carolina Wilmington Financial Report

40 and services provided by the University and the amount that is paid by students or by third parties on the students behalf. Student financial assistance grants, such as Pell grants, and other federal, state, or nongovernmental programs, are recorded as nonoperating revenues in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. To the extent that revenues from these programs are used to satisfy tuition, fees, and other charges, the University has recorded a scholarship discount. N. Revenue and Expense Recognition The University classifies its revenues and expenses as operating or nonoperating in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the University s principal ongoing operations. Operating revenues include activities that have characteristics of exchange transactions, such as (1) student tuition and fees, (2) sales and services of auxiliary enterprises, (3) certain federal, state, and local grants and contracts that are essentially contracts for services, and (4) interest earned on loans. Operating expenses are all expense transactions incurred other than those related to capital and noncapital financing or investing activities as defined by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Nonoperating revenues include activities that have the characteristics of nonexchange transactions. Revenues from nonexchange transactions that represent subsidies or gifts to the University, as well as investment income, are considered nonoperating since these are investing, capital, or noncapital financing activities. Capital contributions are presented separately after nonoperating revenues and expenses. O. Internal Sales Activities Certain institutional auxiliary operations provide goods and services to University departments, as well as to its customers. These institutional auxiliary operations include activities such as copy centers, motor pool, postal services, and telecommunications. In addition, the University has other miscellaneous sales and service units that operated either on a reimbursement or charge basis. All internal sales activities to University departments from auxiliary operations and sales and service units have been eliminated in the accompanying financial statements. These eliminations are recorded by removing the revenue and expense in the auxiliary operations and sales and service units and, if significant, allocating any residual balances to those departments receiving the goods and services during the year. NOTE 2 DEPOSITS AND INVESTMENTS A. Deposits Unless specifically exempt, the University is required by North Carolina General Statute to deposit moneys received with the State Treasurer or with a depository institution in the name of the State Treasurer. However, the University of North Carolina Board of Governors, pursuant to G.S , may authorize the University to deposit its institutional trust funds in interest bearing accounts and other investments authorized by the Board of Governors, without regard to any statute or rule of law relating to the investment of funds by fiduciaries. Although specifically exempted, the University may voluntarily deposit institutional trust funds, endowment funds, special funds, revenue bond proceeds, debt service funds, and funds received for services rendered by health care professionals with the State Treasurer. Special funds consist of moneys for intercollegiate athletics and agency funds held directly by the University. At June 30, 2014, the amount shown on the Statement of Net Position as cash and cash equivalents includes $126,459,048 which represents the University s equity position in the State Treasurer s STIF. The STIF (a portfolio within the State Treasurer s Investment Pool, an external investment pool that is not registered with the Securities and Exchange Commission and does not have a credit rating) had a weighted average maturity of 1.3 years as of June 30, Assets and shares of the STIF are valued at amortized cost, which approximates fair value. Deposit and investment risks associated with the State Treasurer s Investment Pool (which includes the State Treasurer s STIF) are included in the State of North Carolina s Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page and clicking on Reports or by calling the State Controller s Financial Reporting Section at (919) University of North Carolina Wilmington Financial Report 28

41 Cash on hand at June 30, 2014 was $36,214. The carrying amount of the University s deposits not with the State Treasurer was $3,219,842 and the bank balance was $3,219,842. Custodial credit risk is the risk that in the event of a bank failure, the University s deposits may not be returned to it. The University does not have a deposit policy for custodial credit risk. As of June 30, 2014, the University s bank balance was exposed to custodial credit risk as follows: Uninsured and Uncollateralized $ 2,469,785 B. Investments The University is authorized by The University of North Carolina Board of Governors pursuant to G.S and Section of the Policy Manual of the University of North Carolina to invest its special funds and funds received for services rendered by health care professionals in the same manner as the State Treasurer is required to invest, as discussed below. G.S (c), applicable to the State s General Fund, and G.S , applicable to institutional trust funds, authorize the State Treasurer to invest in the following: obligations of or fully guaranteed by the United States; obligations of certain federal agencies; repurchase agreements; obligations of the State of North Carolina; certificates of deposit and other deposit accounts of specified financial institutions; prime quality commercial paper; asset backed securities with specified ratings, specified bills of exchange or time drafts, and corporate bonds/notes with specified ratings; general obligations of other states; general obligations of North Carolina local governments; and obligations of certain entities with specified ratings. In accordance with the bond resolutions, bond proceeds and debt service funds are invested in obligations that will by their terms mature on or before the date funds are expected to be required for expenditure or withdrawal. G.S (e) provides that the trustees of the Endowment Fund shall be responsible for the prudent investment of the Fund in the exercise of their sound discretion, without regard to any statute or rule of law relating to the investment of funds by fiduciaries but in compliance with any lawful condition placed by the donor upon that part of the Endowment Fund to be invested. Investments of the University s component unit, the Watson Foundation are subject to and restricted by G.S. 36E Uniform Prudent Management of Institutional Funds Act (UPMIFA) and any requirements placed on them by contract or donor agreements. Investments of various funds may be pooled unless prohibited by statute or by terms of the gift or contract. The University utilizes investment pools to manage investments and distribute investment income. Investments are subject to the following risks. Interest Rate Risk: Interest rate risk is the risk the University may face should interest rate variances affect the fair value of investments. The University does not have a formal policy that addresses interest rate risk. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy that addresses credit risk. Long Term Investment Pool This is an internal investment pool that is utilized for the investment of the endowment funds. Fund ownership is measured using the unit value method. Under this method, the pool uses a unit basis to determine each participating fund s market value and to distribute the fund s earnings. The investment strategy, including the selection of investment managers, is based on the directives of the University s Endowment Board University of North Carolina Wilmington Financial Report

42 The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2014, for the Long Term Investment Pool. Long Term Investment Pool Fair Value Investment Type UNC Investment Fund $ 41,510,931 Equity Mutual Funds 32,498,003 Investments in Real Estate 294,766 Total Long Term Investment Pool $ 74,303,700 UNC Investment Fund, LLC At June 30, 2014, the University s investments include $41,510,931 which represents the University s equity position in the UNC Investment Fund, LLC (UNC Investment Fund). The UNC Investment Fund is an external investment pool that is not registered with the Securities and Exchange Commission, does not have a credit rating, and is not subject to any regulatory oversight. Asset and ownership interests of the UNC Investment Fund are determined on a market unit valuation basis each month. Investment risks associated with the UNC Investment Fund are included in audited financial statements of the UNC Investment Fund, LLC which may be obtained from UNC Management Company, Inc., 1400 Environ Way, Chapel Hill, NC Non Pooled Investments The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2014, for the University s non pooled investments. Non Pooled Investments Fair Value Investment Maturities 1 to 5 Years Investment Type Debt Securities Debt Mutual Funds $ 390,538 $ 390,538 Other Securities Equity Mutual Funds 1,186,043 Investments in Real Estate 4,251,198 Domestic Stocks 13,157 Other: Life Insurance 14,585 Total Non Pooled Investments $ 5,855,521 At June 30, 2014, the University s non pooled investments had the following credit quality distribution for securities with credit exposure: BB/Ba Fair AAA AA BBB and Value Aaa Aa A Baa below Unrated Debt Mutual Funds $ 390,538 $ 187,148 $ 53,000 $ 45,898 $ 62,776 $ 35,863 $ 5,853 Rating Agency: Standard & Poor's 2014 University of North Carolina Wilmington Financial Report 30

43 Total Investments The following table presents the fair value of the total investments at June 30, 2014: Fair Value Investment Type Debt Securities Debt Mutual Funds $ 390,538 Other Securities UNC Investment Fund 41,510,931 Equity Mutual Funds 33,684,046 Investments in Real Estate 4,545,964 Domestic Stocks 13,157 Other: Life Insurance 14,585 Total Investments $ 80,159,221 C. Reconciliation of Deposits and Investments A reconciliation of deposits and investments for the University as of June 30, 2014, is as follows: Cash on Hand $ 36,214 Amount of Deposits with Private Financial Institutions 3,219,842 Deposits in the Short Term Investment Fund 126,459,048 Long Term Investment Pool 74,303,700 Non Pooled Investments 5,855,521 Total Deposits and Investments $ 209,874,325 Deposits Current: Cash and Cash Equivalents $ 100,713,018 Restricted Cash and Cash Equivalents 14,401,915 Noncurrent: Restricted Cash and Cash Equivalents 14,600,171 Total Deposits 129,715,104 Investments Noncurrent: Endowment Investments 80,159,221 Total Investments 80,159,221 Total Deposits and Investments $ 209,874,325 NOTE 3 ENDOWMENT INVESTMENTS Investments of the University s endowment funds are pooled, unless required to be separately invested by the donor. If a donor has not provided specific instructions, state law permits the Board of Trustees to authorize for expenditure the net appreciation, realized and unrealized, of the investments of the endowment funds. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), authorized by the North Carolina General Assembly on March 19, 2009, the Board may also appropriate expenditures from eligible nonexpendable balances if deemed prudent and necessary to meet program outcomes and for which such spending is not specifically prohibited by the donor agreements. During the year, the Board did not appropriate expenditures from eligible nonexpendable endowment funds University of North Carolina Wilmington Financial Report

44 Investment return of the University s endowment funds is predicated on the total return concept (yield plus appreciation). Annual payouts from the University s endowment funds are based on an adopted spending policy which limits spending to 4.5% of the average market value of the endowment over the three previous years. To the extent that the total return for the current year exceeds the payout, the excess is reinvested with principal. If current year earnings do not meet the payout requirements, the University uses accumulated income and appreciation from restricted, expendable net position endowment balances to make up the difference. At June 30, 2014, net appreciation of $28,410,205 was available in the University s endowment funds of which $25,152,151 was classified in net position as restricted for specific purposes (e.g. scholarships and fellowships, research, professorships, departmental and other uses). The remaining portion of net appreciation available to be spent is classified as unrestricted net position. NOTE 4 RECEIVABLES Receivables at June 30, 2014, were as follows: Less Allowance Gross for Doubtful Net Receivables Accounts Receivables Current Receivables: Students $ 1,851,891 $ 186,248 $ 1,665,643 Accounts 1,362,234 1,362,234 Intergovernmental 45,241 45,241 Pledges 223,960 11, ,762 Interest on Loans 108, ,743 Other 50,334 50,334 Total Current Receivables $ 3,642,403 $ 197,446 $ 3,444,957 Noncurrent Receivables: Pledges $ 237,876 $ 26,304 $ 211,572 Notes Receivable: Notes Receivable Current: Federal Loan Programs $ 556,362 $ 50,934 $ 505,428 Institutional Student Loan Programs 163, ,336 Total Notes Receivable Current $ 719,698 $ 50,934 $ 668,764 Notes Receivable Noncurrent: Federal Loan Programs $ 4,342,716 $ 434,272 $ 3,908,444 Institutional Student Loan Programs 36,021 36,021 Total Notes Receivable Noncurrent $ 4,378,737 $ 434,272 $ 3,944, University of North Carolina Wilmington Financial Report 32

45 NOTE 5 CAPITAL ASSETS A summary of changes in the capital assets for the year ended June 30, 2014, is presented as follows: Balance July 1, 2013 Balance (as restated) Increases Decreases June 30, 2014 Capital Assets, Nondepreciable: Land and Permanent Easements $ 9,263,459 $ 0 $ 0 $ 9,263,459 Art, Literature, and Artifacts 1,673,320 8,055 1,681,375 Construction in Progress 30,512,848 1,571,167 30,449,291 1,634,724 Total Capital Assets, Nondepreciable 41,449,627 1,579,222 30,449,291 12,579,558 Capital Assets, Depreciable: Buildings 536,211,674 30,507, ,719,330 Machinery and Equipment 40,229,409 1,995,849 3,324,344 38,900,914 General Infrastructure 41,862,852 1,262,194 43,125,046 Total Capital Assets, Depreciable 618,303,935 33,765,699 3,324, ,745,290 Less Accumulated Depreciation for: Buildings 122,407,326 12,530, ,937,845 Machinery and Equipment 24,272,513 2,684,530 3,128,394 23,828,649 General Infrastructure 13,491, ,902 14,471,629 Total Accumulated Depreciation 160,171,566 16,194,951 3,128, ,238,123 Total Capital Assets, Depreciable, Net 458,132,369 17,570, , ,507,167 Capital Assets, Net $ 499,581,996 $ 19,149,970 $ 30,645,241 $ 488,086,725 During the year ended June 30, 2014, the University incurred $11,449,993 in interest costs related to the acquisition and construction of capital assets. Of this total, $11,381,786 was charged in interest expense, and $68,207 was capitalized. NOTE 6 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at June 30, 2014, were as follows: Amount Current Accounts Payable and Accrued Liabilities Accounts Payable $ 1,730,663 Accrued Payroll 677,338 Contract Retainage 1,108,600 Intergovernmental Payables 24,454 Total Current Accounts Payable and Accrued Liabilities $ 3,541,055 Noncurrent Accounts Payable Accounts Payable $ 330, University of North Carolina Wilmington Financial Report

46 NOTE 7 LONG TERM LIABILITIES A. Changes in Long Term Liabilities A summary of changes in the long term liabilities for the year ended June 30, 2014, is presented as follows: Balance July 1, 2013 Balance Current (as restated) Additions Reductions June 30, 2014 Portion Revenue Bonds Payable $ 107,382,684 $ 0 $ 5,001,290 $ 102,381,394 $ 5,184,356 Certificates of Participation 124,870,000 1,265, ,605,000 1,400,000 Plus: Unamortized Premium 3,789, ,631 3,604,630 Total Revenue Bonds and Certificates of Participation Payable, Net 236,041,945 6,450, ,591,024 6,584,356 Notes Payable 8,050, ,617 7,709, ,815 Compensated Absences 8,778, , ,560 8,509,701 89,597 Total Long Term Liabilities $ 252,870,800 $ 655,197 $ 7,716,098 $ 245,809,899 $ 7,033,768 Additional information regarding blended component units is included in Note 16. July 1, 2013 has been restated to blend the financial statements of the UNCW Corporation II and the UNCW Research Foundation with those of the University. Additional information regarding net position restatements is included in Note 17. B. Revenue Bonds Payable and Certificates of Participation The University was indebted for revenue bonds payable and certificates of participation for the purposes shown in the following table: Interest Final Original Principal Principal Rate/ Maturity Amount Paid Through Outstanding Purpose Series Ranges Date of Issue June 30, 2014 June 30, 2014 Revenue Bonds Payable UNCW General Revenue Bonds Construct MARBIONC Facility * 01/01/ ,750,000 1,115,000 14,635,000 Schwartz/Suites & Wagoner Renovation Projects /01/2026 9,000,000 1,448,606 7,551,394 Refund 2003A Union /01/ ,755,000 50,000 11,705,000 Total UNCW General Revenue Bonds 36,505,000 2,613,606 33,891,394 The University of North Carolina System Pool Revenue Bonds Refund Series J and Recreation (2005A) (A) /01/ ,630,000 7,300,000 5,330,000 Union Addition & Parking (2006A) (B) /01/ ,400,000 4,985,000 14,415,000 Refund Series 2002A & 2003A; Rec Ctr Exp (2010C) (C) /01/ ,170,000 4,085,000 28,085,000 Recreation Center Expansion (2010D) (D) * 10/01/ ,660,000 20,660,000 Total The University of North Carolina System Pool Revenue Bonds 84,860,000 16,370,000 68,490,000 Certificates of Participation Student Housing Seahawk Village /01/ ,710,000 1,350,000 27,360,000 Student Housing Seahawk Landing /01/ ,290,000 1,040,000 37,250,000 Student Housing Seahawk Crossing & Parking Deck /01/ ,460,000 2,465,000 58,995,000 Total Certificates of Participation 128,460,000 4,855, ,605,000 Total Revenue Bonds Payable and Certificates of Participation (principal only) $ 249,825,000 $ 23,838, ,986,394 Plus: Unamortized Premium 3,604,630 Total Revenue Bonds Payable and Certificates of Participation, Net $ 229,591,024 (A) The University of North Carolina System Pool Revenue Bonds, Series 2005A (B) The University of North Carolina System Pool Revenue Bonds, Series 2006A (C) The University of North Carolina System Pool Revenue Bonds, Series 2010C (C) The University of North Carolina System Pool Revenue Bonds, Series 2010D * The University has elected to treat these bonds as federally taxable "Build America Bonds" for the purposes of the American Recovery and Reinvestment Act and to receive a cash subsidy from the U.S. Treasury equal to 32% of the interest payable on these bonds. For these bonds, the interest rate included is the taxable rate, which does not factor in the cash subsidy from the U.S. Treasury University of North Carolina Wilmington Financial Report 34